Ethereum is a decentralized, open-source blockchain platform with smart contract capabilities. Ether (ETH) is the platform's native cryptocurrency and the second-largest cryptocurrency by market capitalization after Bitcoin. Unlike Bitcoin, Ethereum can be used for more than just storing or transferring value. Its blockchain provides developers with a variety of powerful tools to create and deploy their own interoperable, decentralized assets and services. Transactions are sent and received by user-created Ethereum accounts. Senders must sign transactions and use Ether, Ethereum's native cryptocurrency, as a fee for processing transactions on the network.
Background of Ethereum
Bitcoin pioneered decentralized cryptocurrency, and more than five years have fully tested the feasibility and security of blockchain technology. The Bitcoin blockchain is actually a distributed database. If you add a symbol to it - Bitcoin, and set a protocol so that this symbol can be safely transferred on the database without trusting a third party, the combination of these features perfectly constructs a currency transmission system - the Bitcoin network.
However, Bitcoin is not perfect. The scalability of the protocol is a shortcoming. For example, there is only one symbol in the Bitcoin network - Bitcoin, and users cannot customize other symbols. These symbols can represent company stocks or debt certificates, etc., which loses some functions. In addition, the Bitcoin protocol uses a stack-based scripting language. Although this language has a certain degree of flexibility, it enables functions such as multi-signatures, but it is not enough to build more advanced applications, such as decentralized exchanges. Ethereum is designed to solve the problem of insufficient scalability of Bitcoin.
How does Ethereum work?
You may have heard that the Bitcoin blockchain is very similar to a bank's ledger or even a checkbook. It’s a running account of every transaction that’s ever been made on the network, and it can be traced back to its origin. At the same time, the entire network works together to ensure that the account is accurate and secure.
The Ethereum blockchain, on the other hand, is more like a computer: while it still does the job of recording and protecting transactions, it’s much more flexible than the Bitcoin blockchain. Developers can use the Ethereum blockchain to build a wide variety of tools, from logistics management software to games to the entire field of DeFi applications (including lending, trading, etc.).
Ethereum uses a "virtual machine" to achieve all of this, like a giant global computer made up of many personal computers running Ethereum software. Keeping all these computers running involves investments in hardware and electricity by participants. To pay for these expenses, the network uses a proprietary cryptocurrency similar to Bitcoin called Ether (or ETH).
ETH keeps the whole system running. You interact with the Ethereum network by paying the network to execute smart contracts using ETH. Therefore, the fees paid in ETH are called "gas fees."
Gas rates vary depending on how busy the network is. A new version of the Ethereum blockchain, “Ethereum 2.0,” designed to be more efficient, is set to launch in September 2022.
Ethereum’s Key Features
Let’s look at the key features of the Ethereum “platform” and briefly examine some of their impacts:
Open and “permissionless” access
Anyone can create, run, and use applications on the Ethereum network. The network does not pick and choose applications to run, nor do you need to create an account (request permission) to make, deploy, or use applications. Instead, the resources of the shared computer are allocated entirely by market forces. In other words, anyone willing to pay can access the processing power of the network. This is a powerful democratizing feature. This means that, in theory, anyone in the world can use financial protocols built on Ethereum, such as lending. Similarly, anyone can build an application on Ethereum and make it accessible to anyone else in the world without relying on intermediary approval.
Transparency
Anyone can see exactly how the operating system and the applications running on it work. There are no hidden algorithms or proprietary software, so participants can evaluate the finest details of an application before deciding whether to interact with it. The history of each application is also completely transparent. For example, anyone can see the exact amount of collateral held in a lending protocol, from the creation of the protocol all the way to the present.
Immutability
Once the network agrees to share the state of a computer, it becomes a permanent record that cannot be changed. (In the context of computing, "state" refers to the information stored in a computer. The state of a computer changes based on the interaction between external inputs and the system's internal logic.)
The immutability of current and historical states, combined with the transparency mentioned above, gives all participants a high degree of assurance that no fraud has occurred. So instead of trusting, for example, an intermediary or its auditors to track information correctly, you can verify it yourself.
Persistence
The network and the many applications running on it are difficult to shut down. This is made possible by the distributed and decentralized nature of the network. Distributed means that the components of a shared computer — its processing power and memory — are spread around the world. Decentralized means that no single entity controls it. While Ethereum has a public spokesperson, it is not owned by any particular person. This means that while, for example, a government could ban Ethereum and potentially target prominent people associated with it, it would be extremely difficult to prevent ordinary people from using it, let alone shut it down entirely.
Neutrality
Finally, the protocol or “operating system” evolves through a quasi-political process in which a consensus-building culture dominates with the stated goal of achieving “trusted neutrality.” This means that Ethereum can adapt to the needs of participants in a way that differs significantly from traditional proprietary computing models. Specifically, participants are given a higher degree of assurance that they will always have fair access to the network’s resources and that the network will not evolve in a way that prioritizes the needs of one group over another.
Why does the ETH cryptocurrency have value?
First, ETH is the native token of Ethereum and powers all activities within the blockchain. To transact value or interact with decentralized applications built on Ethereum, users must pay a fee denominated in ETH. This fee covers the node's computational costs, which are required to process different transactions.
The more complex the functionality and the greater the network usage, the higher the gas price may be. These fees are transaction fees paid by blockchain users to network validators. Users need to pay the fee in order to interact with various decentralized applications such as decentralized exchanges such as Uniswap, Curve, and Balancer.
Second, some people may attribute value to ETH due to its intrinsic qualities. These include the fact that it is a decentralized, anonymous, and censorship-resistant form of digital currency that anyone in the world can own.
Finally, the forces of market supply and demand determine the value of Ether. Among dozens of cryptocurrency investment trading platforms, investors continue to judge Ethereum's potential as the next generation of cloud computing and smart contract platform.
Ethereum Smart Contract
Smart contracts can be understood as contracts (special transactions) written in code that can be automatically executed (driven by messages) on the blockchain. It is a collection of code and data (state). Smart contracts are written in high-level languages (such as solidity (Ethereum plans to move from Solidity to Viper in the future.), browser's Solidity IDE: Browser-Solidity), and then compiled into bytecode that can be run on EVM (Ethereum Virtual Machine: Ethereum Virtual Machine is the operating environment for smart contracts in Ethereum). After sufficient debugging and testing, it is released. Its concept can be compared to Java code and JVM. The deployment of smart contracts refers to publishing the contract bytecode to the blockchain and using a specific address to mark the contract. This address is called a contract account. There are two types of accounts in Ethereum:
External accounts: This type of account is controlled by a private key (controlled by a person) and is not associated with any code.
Contract Accounts: Accounts that are controlled by their contract code and have code associated with them.
How to Buy Ethereum?
No matter how you get your ETH, there are some basic concepts you need to understand. Every address on the Ethereum network is assigned a public key and a private key, and you will need a wallet to manage your crypto assets.
Public Key: Think of it as an encrypted version of an email address. People can send you ETH and Ethereum-based tokens (such as USDC and Dai) with your Ethereum public key. You can distribute this to other people safely.
Private Key: Think of it as your password. You should generally avoid distributing it to other people. A private key is a long string of letters and numbers. (It can also be in the form of a series of words called a seed phrase.) It is critical to keep track of your private key. If you lose your private key, you lose your ether forever.
Wallet: You need a wallet to store and protect your ether. If you're just starting out, the easiest option is to open an account through the Binance Exchange app or binance.com. In this case, you'll interact with a "custodial wallet," which will store and protect your private keys. After that, you may want to look into other wallet options built to interact with decentralized finance (or DeFi) protocols, such as Compound (a lending and savings app) or Uniswap (a decentralized exchange that allows you to trade cryptocurrencies).
